Retirement Planning: Will your children take care of you when you are old?

 

The Nigerian family usually consists of not only the nuclear family, which is made up of parents and their children, but the extended family, which embraces several generations of people who are related by blood, marriage, or adoption. It is the very foundation of Nigerian social life and includes siblings, grandparents, aunts, uncles, cousins, and even more distant relatives.

The unwritten rule

The extended family system (EFS) has evolved into a homegrown version of a more formal welfare system. Our elderly have traditionally been revered and adored and after all their sacrifice they do deserve rest and comfort in old age. The care of the elderly in our midst is culturally rooted and is one of our core values. It has indeed become a shining example of social security within our communities.

Through this basic economic unit, family members, typically adult children are usually charged with the responsibility for the provision of informal care and support for the elderly; such care and support are generally voluntary and reciprocal and seen as a duty that has been assumed and embraced that comes without any form of formal compensation.

The unwritten rule is that ones children will play an important role in providing economic security and care for aged parents, and in turn can rely upon the financial support of his or her children when they become old.

The changing structure of the Nigerian family

More recently, there has been a gradual but noticeable shift away from the traditional family towards the nuclear family, at the expense of the wider family network, and particularly the elderly, for whom this social phenomenon has served as a form of insurance. It was the traditional economic safety net for old age.

The traditional role of families in caring for the elderly is gradually diminishing due to economic realities, which have hindered the willingness and indeed the ability for family members to give. That sense of duty is being overcome by the daily challenges that family members face in taking care of their most basic needs. Rural-urban migration, modernization and influences from foreign cultures are also leading to the gradual disintegration of our communal sense of living. According to a study by sociologists, the past ten years have seen a 70 per cent increase in Indian households with nuclear families; this community like Africans, has traditionally maintained a communal existence.

Rural-urban migration

With more than half of the world’s population moving towards towns and cities, there is a trend towards urbanization and Nigeria is no different. Advances in careers often require mobility, which usually means migrating from family in search of employment. The elderly thus remain in their hometowns without adequate care and attention.

Old people’s homes in Nigeria?

Whilst the concept of old people’ s homes seems almost alien in our culture, such practical steps must be encouraged where there is no alternative and families are unable to provide even the most basic care for their elderly. It is reported that in 2009, a bill "for an Act to establish Senior Citizens' Centres in the country to cater for the plights of the senior citizens� in the country passed second reading in the House of Representatives.

Currently it is reported that there are only 13 old people’ homes serving Nigeria’s elderly population of an estimated 80 million. In Lagos, a city of over 15 million people, there are only about half a dozen old people’s homes that provide only a handful of places to destitute elderly or those without a family, savings or, that are too frail to work.

Ageing as a Policy Issue

With the lack of a formal comprehensive and effective social security system, and with fledgling pensions and healthcare insurance markets schemes in many developing countries, the diminishing role of families in old age care leaves a huge void. There is thus an urgent need to refocus on issues of ageing in Nigeria and Sub-Saharan Africa.

Ageing has become a global phenomenon and indeed a critical policy issue with serious implications. With shifts from the traditional issues of high mortality and high fertility, to reduced fertility and greater longevity, developing countries face and aging crisis. It is expected that before long an Act will be promulgated by the National Assembly making it mandatory for government at all levels to cater for the plights of the ageing class.

The private sector should also begin to direct its philanthropy to include provision for the elderly. Non-governmental organizations and religious organizations such as The Senior Citizens Care Foundation, The African Gerontological Society, “AGES�, The Catholic Church, among others have made laudable efforts in the provision of assistance to older people through day-care centers, residential homes, and regular medical check-up’s.

Plan for your old age

In today’s world is it unrealistic to assume that your adult children will take care of you when you are old? What makes the best sense is to start to plan early to make provision for that phase of life after active retirement, so that you are prepared for it whether or not they are able to provide required support. Without adequate planning for retirement, with family resources stretched to the limit, and confronted with increasingly expensive health care, many Nigerians could face a grim old age.

Financial security is a factor in successful aging and will help the elderly maintain dignity, independence and autonomy beyond the active retirement years. The main contribution made by balanced portfolio consisting of shares, bonds, cash and real estate, is in giving access to a decent standard of living and of being able to afford long term health care where it is not readily available within the family.

Nowadays, there appears to be a dwindling regard for our elderly. A nation where the elderly are neglected and even abandoned is unpardonable. It is thus important for all of us, to take individual responsibility to take care for and protect the elders in our midst.

Until an organized and effective welfare and social security system is in place, it is expected that the extended family system will continue to play a crucial role in the social welfare of its members. At the same time, it is clear that as cultural values, socioeconomic conditions, and technology continue to evolve, so too will the face and structure of the extended family in our contemporary society. In whatever form it takes, it is our responsibility to protect it.

source:moneymatterswithnimi.com

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Investing In The Stock Market: Are you still sitting on the sidelines?

 

"I lost all my savings in the stockmarket. My friend told me to put everything in bank shares and I did. I lost everything. After what happened to me in 2008, I will never ever invest in the stockmarket again" Seyi  Lawyer

"Don't mention the stockmarket to me! Let me just keep my money in the bank  at least it is safe I don't know how I will educate my children with this 2% interest I am getting, but God is in control" Chinedu - Trader

Being cautious or even afraid of losing money is sensible; the problem is when the fear causes you to be paralysed into doing nothing. Far too many people continue to sit on the sidelines and have abandoned the stock market completely having been badly burnt. Some played the market too aggressively without a full understanding of the risk involved and the possible consequences. Investors are most vulnerable when they let emotions come into play. When markets nosedive, many "investors" bail out, when the markets remain undervalued, they do nothing, and when the markets begin to soar, they regain their confidence, jump on the bandwagon and dive back in and the cycle continues.

It is important to understand your money personality. Instead of investing your money in stocks or in real estate, do you find comfort in putting all your money in the bank guaranteed investments even though you are likely to earn interest at very low rates? If you are totally risk averse, you can expect very little prospect of real growth as guaranteed investments will hardly keep apace with inflation.

Regardless of what you think of the stock market, earning 2 -3% on all your savings will make it challenging to achieve ambitious financial goals. Depending upon your particular circumstance, your age and time frame and your overall financial plan, consider putting at least some portion in the capital market; this does offer the best prospect of real long term growth.

Set yourself clear goals

The best way to navigate the investment environment is to have set goals in place and a clear plan on how to achieve them, before you put any money down at all. Your plan will provide you with direction on how to invest your money.

If you have set yourself clear goals, your focus will largely be on accomplishing them rather than on your short, medium and long-term goals. you will not be that concerned about any short term whatever may be happening in the short term in the stock market, as These may include funding your children's education or making down-payment on your new home. Where you have concrete goals that you are working towards, you will not be easily swayed by market volatility.

Seek professional advice

It is always useful to seek professional advice, particularly where you don't have the time, expertise or inclination to manage your own investments. If you are not an experienced investor, it pays to use a tested investment manager to help you follow through with your plan.

Not even the most skilled investment advisors in the world could have protected investors from the recent losses suffered globally, but an experienced team with a good track record can dispassionately re-examine your investment goals, time frames, risk tolerance, and your current financial situation and structure an appropriate savings and investment plan for you.

Don't depend solely on your investment advisor; make every effort to build your knowledge of investing. There is a plethora of information all around you. Take advantage of this.

Think Long Term

One of the best ways to build sustainable wealth is to take a long-term view of investing; this is probably one of the most important pieces of investment advice there is. It is important to keep your overall perspective in view and not be de-stabilised by the vagaries of the market. When you focus on the long-term you will avoid taking drastic unplanned actions in response to short-term news, rumour, events and emotions, which to a large extent influence the ups and downs of the market.

Sound, well thought out investments, held over a long period will usually weather turbulence. As a good long-term investment plan should anticipate both good times and bad investors should be in a better position to ride out any short-term volatility without being forced to sell at a loss.

"Don't put all your eggs in one basket"

It is tempting to concentrate your available funds in just one or two investments, but this is also very risky. Build a diversified portfolio across asset classes including stocks, bonds, cash, and property. If one investment performs badly or fails, a variety of different types of investments are less likely to.

If you plan to invest, it is important to separate your short-term savings from your long-term funds. Try to estimate your cash needs and where they will come from for say the next two to three years. Are there some large school bills looming or are you planning to retire within the next two to three years? If you have enough cash in the money market to tide you over any volatile periods, you will not have to liquidate investments prematurely to provide cash to meet ongoing cash needs or in an emergency.

The money you can afford to put away for a long period of time would be appropriate for equities and other assets with potential long-term growth. Mutual funds from reputable financial institutions are an ideal option and particularly attractive for those with smaller parcels of funds to invest, as they offer both a diversified portfolio and professional management.

Invest regularly

If you are afraid of investing at the "wrong time" adopt a cost averaging strategy. Instead of trying to time the market, invest on a regular basis in an appropriate vehicle, and even when your finances are stretched. It is a particularly useful tool in a volatile market as you can reduce the average cost of your shares by purchasing more shares when prices are low, and fewer shares when they are high. A consistent disciplined approach takes away the speculative element of investing and reduces stress and fear.

Learn from these unique times; the challenge for us all is to be realistic about our expectations of the market and our investment returns. If you set reasonable long-term profit expectations for your investments you will be more accepting of the inevitable periods of market upheaval. If you stay the course, and continue to build upon the foundations of a sound investment strategy, you can achieve your financial goals.

source:moneymatterswithnimi.com

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Budgeting: Is your spending out of control?

 

Do you ever feel like you have lost control of your finances and all you do is spend, spend, spend? N1,000 here, N5,000 there, N25,000, N100,000 and so on with no respite. Do you constantly have to borrow money from your parents, siblings, or friends? In a way you cannot really stop spending; there are so many payments that have to be made; your rent or mortgage, school fees, groceries, petrol, diesel, the list is endless. Whilst you can’t really avoid the essential expenses, the real problem is the money that just gets frittered away without you really knowing what it went on.

How can you get your spending under control? There is no foolproof method of getting your finances under control but here are a few tips that might help:

Keep track

Write down everything you buy for at least a month: N7,000 for some groceries, N3,000 for petrol for your car, even N200 for your daily newspaper, write it all down. You may not realize that you are spending over half of your income eating out each month. Many of us spend money casually without really thinking about it; after you have used a spending diary for a while and tracked your expenses for say a month you will have a clearer picture of where you can cut back. A spending plan gives you the power to decide how you will spend your money. You will be less likely to overspend when your expenses are planned for.

Create a budget

The budgeting message may seem like it is over flogged but it really is one of the most vital steps you can take to curb over-spending. Having a simple budget is one of the tried and tested ways to keep your finances in check.

Set aside the money you require for your fixed, necessary expenses; groceries utility bills, loans and so on. Then estimate how much you spend outside the essentials say on clothes, and entertainment. It is usually these variable expenses that make you overspend. Withdraw that money at the beginning of the week, and plan to make it last through the week. Determine what to allot to each category and stick to the set spending limits.

By fixing a spending limit and sticking to it you will be much more in control of your spending. The key to the success of this saving method is that once you have spent what you have allocated to each expense category, you must make a conscious effort to just stop. As difficult as it might sound, once the budgeted amount is gone, that’s it. No more withdrawals.

After the first few months you will be able to make adjustments that make your spending pattern more realistic. Remember to involve members of your household. You need their buy in for the initiative to be successful.

Pay with cash


If you feel your debit or credit cards are leading you to spend more than you plan to, then put them away for a while and pay with cash. If you are used to making payments with your cards, using cash may seem ridiculous but it is still the best way to rein in your spending should it get out of control. When you use cards to make payments, you feel less of an impact of how much you are spending because it doesn't feel like you are actually parting with your money.

With a credit card you aren’t spending your own money so the ability to delay payment encourages you to spend more than if it was your money you were parting with right now. It is so easy to slip your ATM card into the machine without feeling the impact.

Save

It might seem absurd to suggest that you save when your finances are out of control but this is exactly what you should do to ensure that you are not tempted to spend what could be going towards saving and investing. Put aside some money at the very beginning of the month, when you receive your salary for savings. Automate the process so that your current account is debited at source and the funds are moved directly into a savings account.

Once you have reached an initial goal of having an emergency fund of say six months of expenses safely set aside, you can begin to save for other goals. A direct debit from your current account to an equity fund is a painless and effective way to invest towards your long-term goals.

We all love to shop. It seems to be woven into the very fabric of our society. There is nothing wrong with a little shopping from time to time but when your spending gets out of control it can destroy finances, relationships, even lives. Financial hardship and debt doesn’t just happen overnight. It takes time to run up unpaid bills, to default on loan repayments, to constantly buy things that you don’t need. If you are focused and disciplined about getting your finances in order you will soon be back in charge of your financial future and can enjoy the sense of satisfaction, fulfillment and satisfaction that this brings.

source:moneymatterswithnimi.com

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Family Finance: Being financially prepared for a new arrival

 

 It goes without saying that the birth or adoption of a child is probably one of the most rewarding and most significant life experiences. Financially however, for many families it is generally regarded as one of the most challenging. A baby is another mouth to feed, clothe, keep entertained and educate – all at significant cost.
The introduction of a new baby raises numerous questions related to money. New parenthood naturally comes with new financial responsibility. The change in lifestyle and increased expense, which generally arrive at a period of time when a young couple is just starting out and building assets, is immense The key is to be financially prepared and aware of your financial situation. Here are some of the steps you should consider as you plan for a new baby.

Make a budget
A most important first step is to develop a new household budget. With the new addition to the family, it pays to begin early to start to review and estimate current and future expenses, from nappies, to university. Even for a first baby when one may be particularly sentimental and will want to buy everything new, don’t be tempted to over-shop; remember babies outgrow everything very quickly; you may even be able to borrow expensive equipment from close friends or family that the baby will use only for a short time.

Calculate roughly how much you will need to provide for all the costs. Will your income be enough to cover all these additional expenses? Are you or your spouse in a position to earn additional income by increasing your productivity at this time? If not, you may have to start cutting down on non-essential expenses before the baby is born and adjust your lifestyle accordingly.

Start saving early
Once the baby arrives your expenses go up so it may be harder to cope with any high interest debt. Even reducing it significantly before the child arrives could give you a sense of relief. You don’t want to be overwhelmed by high outstanding balances during a time where there is an additional person to provide for and in some cases, one fewer income.
As soon as you decide to start a family or as soon as you know that you are expecting, start to set aside some money on a regular basis; create a “baby fund” to cover looming expenses. Such savings will be very useful when the baby is born as one parent usually has to take time off work for maternity leave and even longer, which can have implications for family income. You should also consider taking this opportunity to save that money in some type of investment vehicle for future or emergency use With the money you save by cutting corners elsewhere, open a money market account or other short-term savings vehicle. Since you may be forced to use the funds in an emergency, avoid placing the money in an account that has early withdrawal penalties.

Maternity Leave
Not all companies do not have very generous maternity or paternity leaves, but most employees can take a 12 week unpaid leave to bond with a child under the Family and Medical Leave Act without losing their jobs. Since the leave is unpaid you need to figure out if you have enough cash to cover the leave.

Will you need and be able to afford a bigger apartment/ home. How much will childcare cost? Can you afford to have your spouse not work for a period of time? How will you get by on one income alone?
Your monthly household income is likely to change; Who will take care of the child? Will one parent stay at home; work full time, or part time? For how long will that person stay away from work? Even if you are able to or decide to stay at home with the children, bear in mind that an extended absence from work, skills and training, could limit future career options, and therefore your lifetime earning potential. If you do wish to pursue a career, consider maintaining part-time work or continue to develop yourself through training and education while the children are still young.

Childcare 

For many families, child-care is likely to be a major expense especially as most women must return to work outside the home or run their own business to earn income. Good childcare is never cheap and must be planned for before the baby arrives. Visit a few good day care centers in your area, interview nannies and decide what is best for your baby.  If both parents will return to work soon after the baby’s arrival, you need to factor this expense into your monthly budget.

Are you insured?

With a family depending on you, you need to know they’ll be protected if your life changes or anything happens to you. You can choose from different levels of cover to protect your mortgage, and to provide for your loved ones if you die.
If your employer has a family health insurance plan, add the new baby onto it. The additional sum will be predictable but it is more difficult to plan for each visit to the paediatrician, medication, and other unexpected medical expenses that tend to come up.

Even if you do have health insurance you could still end up paying quite a bit out of pocket depending on what type of insurance you have. Check the policy so you know what expenses you will have to incur. Some companies offer staff multiple insurance options where it is possible to switch into a slightly more expensive policy that covers more from pregnancy, to delivery and afterwards. If you do not already have health insurance in place and you are pregnant it may be hard to buy insurance since insurance companies treat pregnancy as a pre-existing condition.

If you don’t have health insurance, get some immediately. A newborn is naturally very susceptible to disease so having medical coverage for the baby is very important.


Review your life insurance.

Do you have a life insurance cover? As morbid as it sounds, it is important to buy life insurance to protect your child in case you die before his or her adulthood in case something happens to you? You should have a solid strategy in place for your children's care in the event of your death.

Get a will
The birth of a child is also a good time to review your will and make any necessary changes to protect your family. Having a new baby is a good time for couples to check if beneficiaries on any financial documents need to be changed, including their will. Most young people consider it absurd to write a will when they have little. Yet, one of the most important reasons for having a will has nothing to do with money. For example, a will gives you the ability to say who will raise your child in the event that both parents die. If you don’t have a will, the court decides. If you do not have clear instructions in a will, the courts can appoint a guardian for your child and a court-ordered administrator will manage their assets.

Most of us avoid estate planning because we don’t want to think about the possibility of our early demise. Get it done now and you shouldn't have to think about it again until your circumstances change significantly. At least ensure that funds are in place for a good education for your child.

Start saving for college

Funding your children’s education is likely to be the greatest financial challenge we ever face. University education seems a lifetime away for your new child, but bear in mind that the costs of higher education continue to rise and the sooner you begin save towards this, the better. Time is on your side. By starting early, you will have the benefit of a wider variety of investment and savings options to help you to achieve your goals.
With proper financial planning, budgeting for the baby, and saving from the start, you can welcome your new bundle of joy into the world without having to worry about your finances.

source:moneymatterswithnimi.com

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Investing In The Stock Market: Ten tips for investing in the stock market

 

When it comes to playing the stock market, women all over the world have lagged behind men. Too many women remain hesitant about investing in the stock market Because of their strong aversion to risk and the fear of loss, they tend to be more inclined to put all their money in short term investments and have therefore missed out on many wealth-building opportunities.

The Stock Market

The stock market is really like any other market place - it facilitates the exchange of stocks between willing buyers and willing sellers driven by supply and demand on the stock exchange. Where the demand is high, share prices rise and where demand is low, share prices fall.

Buying and selling shares

You normally buy and sell shares through stockbrokers who usually offer three main types of service; advisory, discretionary and execution-only. Through the advisory service you are entitled to be given advice on what to buy or sell and thereafter you make your decision. The discretionary service is ideal for those who lack the time or expertise to make their own investment choices and totally rely upon experts to make decisions for them. For the experienced investor however, execution-only services are adequate where the investor directs the stockbroker as to what to buy or sell and at what price.

For most investors, mutual funds are the easiest way to access the stock market. A mutual fund pools investor’s funds and manages them in stocks, bonds, money market instruments, etc. The benefits of mutual fund ownership include the wide variety of investment types to choose from, professional management, and having a diversified portfolio.

Ten Tips for investing in the stock market

How much should you invest in the stock market? How can you make sure you don’t lose your money? How do you select the “right� stocks? These are questions that investors always ask yet there is no right answer. It is true that there are no foolproof rules that successful investors follow but below are ten tips that should help you along your way.

1. Start early

It is important to start investing at an early age. Young people have the advantage of age on their side and can afford to hold on to investments without being in a hurry to sell. This means that they will be able to ride the inevitable volatility with the prospect of good returns over the long term.

2. Stick to your goal

Before deciding if a particular type of investment is the right one for you, consider whether you will need the money in the short, medium or long term.

Once you set your goal, stick to it and don’t be tempted to act on impulse. The stock market will go up, and it will go down. Successful players are able to ride the wave and realize the greatest returns on their investments as they remain focused on their goals which may include, owning their dream home and giving their children the best possible education.

3. Get Professional Help

If you are a new investor, it pays to get help. Professionals have the expertise and an enormous amount of information with which they can make well-informed decisions and guide you appropriately. Once you are used to the market, you can become more involved.

4. Invest for the long term.

It is important to have a long-term perspective when you invest in the stock market. Historically, stocks have generally outperformed other investment classes over the long term. However, in the short term, the market can be unpredictable so trying to make day-to-day decisions is really only for your stockbroker or the truly experienced investor.

It is impossible to predict accurately what the stock market will do tomorrow. Sometimes the stock market makes sense and at other times no one can really explain why it is acting in a certain way. Many factors come to bear as to whether the market will go up or down, such as market trends and economic forecasts, the political situation, investor perception, emotions, greed and fear.

5. Invest only what you can afford to lose

It is important to be aware of the risk that goes with stock market investing. Stock market investments are not guaranteed. This means that although you are likely to make money over the long term, you can lose money. If you can’t bear to take much risk and would be devastated by a loss, its best for you to steer clear and invest in guaranteed investments such as fixed deposits, Certificates of Deposit, or Commercial Papers.

Bear in mind however, that when it comes to money, sometimes playing it too safe isn't necessarily the winning formula. If you invest all your money in guaranteed investments, your investments are not going to keep up with inflation. By being better informed you are better able to understand your own risk tolerance level.

6. Don’t jump on the bandwagon

Many new investors are enticed by short-term profits. The "get in, get out and make a killing" approach comes with much risk. It is true that many investors make lots of money by actively trading in the short term but be careful.
Stock markets usually move long before any news becomes clear. If you jump into the market after many investors have already acted it may be too late and you would have missed the boat. If possible, it is best to be positioned before the main directional change takes place, and this takes some understanding of the market. When you make an investment, you should know your reasons for doing so. Relying upon every rumour or tit bit from your brother or neighbour is gambling.

7. Buy low-sell high.

This seems so obvious but from my experience many investors often do the exact opposite! They jump on the bandwagon and invest when the market is already rallying. Once it reverses they panic and sell. If anything, this should be considered an opportunity to invest in strong companies at bargain prices. A market decline is not the time to panic and sell, but rather to take advantage of the lower prices.

8. Invest regularly

Allocate a part of your investments in a systematic investment plan. Through cost averaging you buy shares on a regular basis, say monthly, or quarterly. This means that one buys stocks when the market prices are low as well as when they are high. Over the long term you end up buying your shares at a lower average cost.

9. Diversify

Do not put all your eggs in one basket. When it comes to buying shares, diversification is essential. Instead of investing all your money in just one or two companies, its best to diversify by buying shares in different companies and sectors. Any losses caused by the downslide in one sector may be covered by a rise in another, as it is unlikely that all segments will perform in exactly the same way and decline together. Investing in a mutual fund ensures diversification so many investors opt for this option.

It is also wise to diversify amongst other asset classes such as money market instruments, or real estate. That way, in a stock market decline, all your assets won’t be exposed to the potential losses this can bring.

10. Build your knowledge

One of the best investments you can make in yourself is to take the time and trouble to improve your knowledge of investing. There is a plethora of information and research by professional analysts and experts, which will be a good guide. Investment seminars are also available that can develop you and point you in the right direction. Resolve to take out fifteen minutes each day to educate yourself. You will be surprised to see how much you can learn in a year.

Investing is a journey towards achieving your goals. If you keep your goals in mind and work towards your master plan you wont be easily derailed by market hype and volatility. Your own unique circumstances should ultimately determine how much, how and when you should invest.

source:moneymatterswithnimi.com

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Family Finance: Yours, mine, and ours

 

As two individuals merge all their worldly goods there are many things to consider. After the excitement of the wedding ceremonies, it is time to face your financial future together. Have you effected your name change on your documents? Will you have joint or separate accounts? How will you manage your investments? Have you updated your insurance policies to reflect your new beneficiary?

Name Changes
Should you decide to adopt your spouse’s name, take time to update your records; change your name on your drivers’ license to your share certificates, your will and other legal documents. Notify your employer, creditors, insurance agents, and bankers who will need to see your certified marriage certificate as legal proof of your new status before any changes can be effected.

Review your Insurance
If you and your spouse work and are covered by separate health plans through your jobs, compare the two plans as you may find that it might work out cheaper to have one family plan instead of two individual ones. This is a good time to discuss life insurance; when you are single and without dependants this will not be a priority, but in marriage, and certainly where one party is the primary breadwinner, a life insurance policy is appropriate as a sudden loss of income can be devastating to a young family.

Dealing with debt
Many people don't discover the extent of their spouse's financial obligations until they are married. Debt brought into marriage can be a major source of strife if not well handled. Whilst you are not legally responsible for the credit-card debt or other loans opened in your spouse's name, it could affect your eligibility for joint loans such as a mortgage. Even if the debt may have been incurred before the marriage or afterwards, try to deal with the debt together and seek to bring it under control.

Separate, joint or a combination
You may prefer to maintain a certain degree of independence by keeping separate accounts for personal spending. If your partner is a spendthrift whilst you are a saver or you just prefer to spend your money without your partner scrutinizing the minutest detail, separate accounts may be more appropriate.
Parties to a joint account have a right to withdraw all the money in the account. It is for this reason that the use of joint accounts is usually limited to people who have built a solid level of trust; generally close family members, partners, parents and children. For example, an elderly parent may open a joint account with an adult child to pay household bills or to avoid the complicated probate court process in the event of their demise. A parent may also opt to maintain a joint account with a child to provide immediate access to funds should the need arise.
Having a joint account combined with individual accounts for personal expenses is a good compromise as each partner takes some responsibility for the household budget, yet is still able to retain some autonomy. Partners contribute a certain amount of their monthly salary into the joint account to cover routine household expenses such as food, utility bills, and larger expenses such as rent or mortgage payments, school fees, and family vacations. If you earn significantly more or less than your spouse, it’s only fair to contribute amounts in proportion to your respective incomes to reflect this imbalance.
Joint account holders and authorized signatories
There is sometimes confusion about the difference between a joint account holder and an authorized signatory. Creditors view a joint account as they would an individual account, this means that each account holder is financially liable, and of course either party can withdraw at will.
It is important to note that whilst an authorized signatory is able to operate the account, the main account holder can choose to remove or change their access at any stage. If the main account holder dies, the other signatory to the account would cease to have access to any money because the account would form part of the deceased estate.

Update your beneficiaries
It may seem absurd to be discussing your estate plan at this stage of your life, but you need to update the beneficiary designations on your employers “next of kin” form, bank accounts, retirement savings account, insurance policies and your will. This is doubly important where this is not your first marriage.


One advantage of a joint account with the “right of survivorship” is that if one of two joint account holders dies, the surviving account holder is entitled to the account. Assets such as bank accounts, brokerage accounts, and property titled in both your names will usually pass to your spouse without going through the probate process. It is important to consider these issues so that your assets will be divided the way you want should something happen to one or both of you. Seek legal advice as to the best way to title your accounts and other property.
There is no one size fits all when it comes to finances in relationships but with careful planning and clear communication you can avoid many frustrating conversations. Even the best system is not always appropriate so be prepared to modify your system as your relationship and financial situation evolves; if one option doesn’t work, try another. The financial decisions that you make now can have a lasting impact on your financial future as you go through the various stages of life.
  
source:moneymatterswithnimi.com

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Children & Money: Teaching your child about money - Part II

 

Winston Churchill once said, 'saving is a very fine thing. Especially when your parents have done it for you,' When I ask parents if they are saving for their children, they often respond -”I can barely put anything aside for myself not to talk of saving for my children!” Yet this could be a huge opportunity lost as saving for children, comes with the advantage of time. The earliest gifts have time to grow and they can benefit from the magic of compound interest. To Invest in a child's economic wellbeing is one of the most fulfilling actions a parent can take.

Savings Accounts

The traditional Naming Ceremony, for many Nigerian families presents a good opportunity to jumpstart the saving scheme for a child, so try not to spend all the money you receive! Children often receive token cash gifts during family visits, for birthdays and at Christmas; if they take just a small portion of this and add it to their savings it will be a good place to start.

Most banks offer special savings accounts for children. These are ideal for the smaller cash gifts that are a child’s first savings. These accounts usually offer interesting features aimed at children of up to 18 years, and often attract their attention through targeted adverts and may even offer bonuses or gifts on joining. It is important to fully understand the features in the account you choose so that they meet with your requirements.

My son, an avid Manchester United fan, had a Manchester United Savings Account where he earned an extra 1% interest when his team topped the league. In his early years, it was a great way to keep him interested in saving. Although such incentives are a great way for making saving more exciting for children, your key concern should be the best interest rate and investment performance whilst ensuring that the funds are placed in a stable, strong institution.

Features of savings accounts:
Because children aren’t expected to have vast amounts of money to save, most savings accounts can be opened with small amounts, sometimes as little as N1,000. To help encourage them to save, children’s accounts tend to attract higher interest rates than standard savings accounts with rates of up to 5% per annum offered.
Some savings accounts have restrictions as to the frequency or amount of withdrawals.  If this amount is exceeded there could be a dramatic drop in the interest paid. Some accounts provide instant access, whilst others may require notice to be given to make withdrawals. Many accounts come with an ATM card which is particularly useful for older children, as their ability to physically withdraw money themselves when they need to, makes for a very vivid lesson in money management.

Cash or Stocks?

After your recent experience in the stockmarket, you might be thinking that investing your child’s savings in the stock market is too risky. Many overcautious parents miss out on getting the best out of their children’s money. There is no such thing as an entirely safe savings or investment vehicle – so it is important that you understand the risks that you are taking.

Whilst it is true that money market accounts are a good first step and provide, security, easy access and a guaranteed return, keeping all your savings in cash does involve some risk; the effects of inflation mean that even the best accounts fail to keep pace with inflation. Whilst your eye is on interest rates, the investment is likely to be eroded by inflation; savings accounts are ideal for the everyday, short term savings but don’t lose sight of the prospect of greater growth that the stockmarket can bring; it is generally regarded as the best option for saving for the long-term; market risk is clearly a risk worth taking as there is time to ride out any short-term volatility.

Mutual funds offer diversification by pooling together investors’ funds to invest in a wide range of stocks and are a popular way of investing for children. If your plan is to put money away for your child for a long time, say, five to ten years, then it is well worth considering investing in an equity fund. Although children cannot hold mutual funds in their own name until they reach the age of 18, an adult can open the “account” and add the child's name to the account holder name. The adult can then sign on behalf of the child until they come of age.

The benefit of saving regularly

The concept of cost averaging helps with regular investing for children. To mitigate some of the risk of investing in the stock market one can make regular investments instead of putting money away in one lump sum. By drip-feeding money into the market and investing the same amount on a regular basis, say monthly, every quarter or annually on your child’s birthday, fewer shares or units will be bought when prices are high and more when prices are low; this reduces your overall average cost and means that you don’t risk investing a lump sum when shares are overpriced and then lose out when market prices fall.

Lets imagine a parent invested a sum of N100,000 in an equity fund on the birth of their child on 1 November 1999. Lets also imagine they had the knowledge, foresight and ability to continue to invest the same sum of N100,000 on each birthday each year. By Dele’s tenth birthday on 1 November 2009, the investment could have been worth about N                an by his 1tenth birthday it would have been worth……... Even though this example doesn’t take inflation or exchange rate fluctuations into account, it does graphically portray the magic of compound returns over the long term and what a wonderful gift this could be.

When Do I Start?

Unfortunately children get very little personal financial guidance in school and most don't learn significant lessons until they're adults and only as a direct result of their own real life successes and failures. Before you know it, bad habits can develop that can last a lifetime and any problems can be both costly and emotionally charged as parents resent having to constantly bail their teenagers and young adults out of financial troubles.
  source:moneymatterswithnimi.com

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Children & Money: Teaching your child about money - Part I

 

The elementary school years, when children are being introduced to mathematics concepts and coming to grips with numbers, are an excellent time to lay a solid foundation in personal financial management. Sadly, our educational system focuses almost totally on academic subjects and very rarely is any aspect of money management taught in schools.

If we want our children to grow up to be financially responsible adults, we must introduce them to the fundamentals of personal finance from an early age; they should have some understanding and practical experience in spending, saving, banking and investing. This will help them to develop a responsible attitude towards money and give them a solid foundation for making sensible financial decisions in future.

Give them an allowance

A regular allowance or “pocket money” is often a child's first experience with financial independence as it gives them a certain degree of control over their own money and teaches early lessons in budgeting, saving and prioritizing purchases. In deciding how much to give your child, consider what items an allowance should cover for their age, and what your family can afford. Naturally, a child should not have access to excessive sums of money.

Guide and advise, but don’t dictate how the money should be saved or spent. You need to set some parameters around the types of purchases you expect them to make but as far as possible, allow them to determine their own spending choices. Encourage them to keep a record of how they are saving and spending their money; this will set the stage for budgeting.

Teach them to budget

Learning how to live within ones means is an important aspect of daily life and creating a budget is one of the best ways to achieve this. Sit down with your children and go over their wants and needs. What are they saving towards? How much can they afford? What gifts do they plan to buy? Build in some of their bills into their monthly budget such as the costs of maintaining their mobile phone.

Visit the market or grocery store your with them and explain how you compare items based on price and quality. Talk about the purchases of the day, the way you select, and get value for money. Through commercials and peer pressure, children are constantly tempted to make impulsive purchases and will need guidance from you about how to make sound buying decisions.


Teach them to save

One of the simplest ways to encourage a responsible attitude about money is to encourage children to save. Little children get excited about their “piggy-bank”; this traditional first savings method helps to build initial interest. Today some piggy banks have various compartments for saving, spending, investing and giving; the child then decides where their money goes.

Naturally as children get older, and begin to save more deliberately, it is important to visit a bank with them to make a deposit into an account opened in their name. Many banks offer incentives and attractive savings account options tailored for children.

Should you pay for chores?

Chores offer an important lesson in cooperation, and develop in children a sense of responsibility as they live within their family community. Some parents pay their children for doing chores around the house whilst others prefer to give an allowance with no strings attached.

Try not to tie chores to stringently to allowances as this can make children feel that being paid for helping out at home is their right rather than their duty; some parents soon find themselves having to negotiate to get anything done! You do not want them developing the idea that they must be paid for everything. However, it makes sense to allow them to earn extra money for tasks that fall outside the usual household responsibilities and they benefit immensely from learning to earn.

Saving for financial goals

Encouraging children to set specific, measurable goals drives a sense of motivation. Very young children tend to lose interest in goals that will take too long to achieve. For them, set modest, attainable savings goals. Over time, your child will learn to become a more disciplined saver and can save for longer term goals for large-ticket items like a camera or a computer. Offering to match whatever your child saves towards a long-term goal can be a motivating factor to older children and spurs them into attaining a goal.

Write down each goal, and the amount that must be saved weekly, or monthly to reach it. This will help your child learn the difference between short-term and long-term goals and how best to save or invest to achieve this.

Teach them to give

Involve your children in your financial decisions regarding philanthropy and expose them to charitable giving early in their lives. Children can donate their outgrown toys, books and clothes and as they get older, can volunteer, giving of their time and talent.

These lessons teach them to understand and value those that are less fortunate than they are. This will go a long way to develop a more responsible, caring society as the younger generation begins to have a sense of appreciation for some of the experiences and luxuries that they enjoy and take for-granted. By encouraging this early in their lives, children become empathic and charitable adults who can make a positive impact on the community in which they live.

Be a good role model

Action speaks louder than words. Your children will learn about money values, primarily through your behaviour. If you display an ostentatious, materialistic outlook, this will become the example they may come to live by. The way you deal with money issues, from settling bills to making a large purchase are all-important lessons that will remain with them.

Too many of us look back on life and wish that we had started investing when we were young. Begin early in your children’s lives to instil in them the important building blocks of saving and investing and start them off in the right direction towards a secure financial future.


source:moneymatterswithnimi.com

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Financial Planning: Singles and money matters

 

For many single people, financial planning is not a priority as they feel that they have only themselves to worry about. Whilst every one should plan and save towards the future, being single presents some unique financial challenges that must be specially addressed. Your single status means that you are solely responsible for meeting any financial obligations; you may have to face each financial challenge alone, and to make critical decisions concerning your future and retirement plans.

Whether you are single by choice or by circumstance; young and unmarried, divorced or widowed, here are some issues to consider as you manage your money.

Set clear financial goals

If you have set clear short, medium, and long term goals, you will be able to design a financial plan to help you achieve them. If you are young and single, without dependents or any significant responsibility, this is one of the best times in your life to start to save and build financial security. By saving and investing regularly from now, you will be in a better position to meet your financial needs such as owning your own home, and securing a comfortable retirement.

Where does your money go?

Many single people tend to spend beyond their means and admit that eating out and mobile phone bills are some of the culprits that put a severe strain on their budge. Try to keep track of your spending by being more deliberate about making realistic purchasing decisions.

By creating a budget you will have more control over your spending. You should have a clear understanding of where your money is going and how you can best allocate it to fund your financial goals. Track your expenses so that if you are spending more than you make, you can adjust your budget accordingly and reign in any overspending.

Create an Emergency Fund

If you face a financial crisis, you may have only yourself to rely on. You don’t want to be forced to borrow to get through an emergency. A money market account holding about six months of living expenses is advised, but if you can afford it, go up to one year for added protection. You may need to take care of unexpected car repairs, medical bills, or  you could even lose your job; your emergency fund is a safety net, so do not spend it unless absolutely necessary.

Are you insured?

Young, healthy singles often consider health insurance unnecessary; this is a huge mistake. As pessimistic as it sounds, regardless of your age or present state of health, you can become ill, or be in an accident that lands you in hospital at significant cost.

If you cannot afford the most comprehensive plan with a low deductible, at a minimum, protect yourself from potentially devastating financial loss by purchasing a less expensive plan with a high deductible. This means that you will have to pay for the smaller expenses yourself, whilst the large ones that could make a huge dent in your finances, will be covered by insurance. Even where there is a supportive extended family that may be willing or able to help out, it is wise to have a plan in place to help to offset your expenses should the need arise.

Plan for retirement

When you are young and unattached, it is only natural to feel it is too early to save for retirement, yet your retirement plan rests squarely on your own shoulders. If you are not a beneficiary of an employer matched retirement plan, set up your own personal Retirement Savings Account with a Pension Fund Administrator. The sooner you begin to put money aside for retirement the better; if you delay by even just a few years, you could lose much of the advantage compounding brings.

Prepare a will

Many single adults do not realize the importance of having a will.  If you own anything of value such as a home, cars, bank accounts, jewellery, stocks or property, you should have a will specifying who you would like to bequeath your possessions to if you die; relatives, friends, or your favourite charities. Without this, the court will determine how your assets are distributed.
It is easy to avoid thinking about the worst case scenario; no one contemplates being ill for any long period of time or needing to be cared for. If you find yourself unable to make medical decisions for yourself, a living will and power of attorney for your finances and health care will designate someone you trust to make critical decisions for you or carry out your express wishes.

Your financial future will be largely affected by the decisions that you make today. With proper planning while you are single, you may be well established financially by the time you get married and if you do remain single, you can be confident in your ability to achieve the lifestyle and financial security that you desire.

source:moneymatterswithnimi.com 

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Women and Money: The gift of financial security on Mother's Day

 

Mothers make huge sacrifices for their families and often neglect their own needs in the process. One area that is often entirely ignored is their financial security. A lack of financial skills has the potential to negatively impact not only a woman�s future, but also that of her children.

Women face some unique challenges that translate to distinct concerns regarding their finances in the areas of earning potential, roles and responsibilities. Women live longer and are more likely to live alone for significant periods of time. Workforce participation can be intermittent, and the care of dependents, children and aged parents, usually falls on women.

One of the greatest threats to your financial wellbeing is having little or no involvement in the decision-making relating to your finances. Whilst some women are actively involved in family finances, indeed many are assuming the role of primary breadwinner, studies reveal that others delegate almost total responsibility to their spouse or partner. Whilst this might be important for the dynamics of some relationships, it can put them at risk. Indeed women often find themselves ill equipped to cope financially if they face divorce, illness or death of their spouse.

Prioritize your goals and assign them values and target dates. Whether they are short-term-goals such as reducing your debt, purchasing a new car or a vacation, or longer-term goals such as purchasing a new home, building a educational fund for your children, or funding your retirement, setting goals brings you closer to achieving them.

Do you have a budget? If you don't already have one in place, try to create one, and stick to it. A good budget will help you to monitor your expenses; you will have a clearer idea of where you can cut back and save towards your goals.

Millions of people are in a dire financial situation today because they borrowed more than they can comfortably afford to repay. Expensive debt that is incurred purely for consumption can dent your future financial prospects; this includes borrowing to pay for clothing, jewelry, consumer goods, and holidays. Try to tackle your most expensive debt first.

Debt needn�t be negative; indeed credit can be a most effective tool that helps you to create value through well-planned long-term investments. This includes borrowing to buy real estate, finance yours or your children�s education or for your business.

Create an automated savings plan. You will be equipped to cope if you have an emergency fund, a financial cushion to fall back on in times of difficulty. Try to have about six months' worth of living expenses set aside in a safe, accessible interest bearing money market account.

Women have traditionally been more conservative than men in their investing lives. It is important to consider your risk profile bearing in mind that stock market investments, whilst they have provided higher returns over the long term than money market funds, come with greater risk. Rather than be deterred by the current volatility, take advantage of relatively low prices if you do have the funds to put away. A diversified portfolio will help to mitigate some of this risk. Proactively invest in yourself to gain additional skills through reading or more formal instruction.

Bringing up children to develop a healthy attitude towards money as they grow into adulthood requires some commitment and consistency. Even if you can afford to fund everything that your child wants, exercise restraint and teach them to prioritize and distinguish between wants and needs. Encourage them to earn through vacation jobs and internships. This will help prepare them to lead disciplined lives; the last thing you need is to have dependent adult children during your retirement years.

Have you been planning for your retirement? These years should be the time of your life for new and exciting opportunities that will keep you productive, mentally stimulated and fulfilled. Those who start saving and investing early have a much better chance of retiring in comfort.

Don�t neglect your insurance. Reduce the risk of loss using appropriate insurance to protect the things you can�t afford to lose such as your home, or your car or other property. Life insurance is particularly important for a breadwinner. Without adequate insurance, an accident, a medical emergency, a fire or other disaster your financial security could be undermined.

Estate planning is always an emotive subject, and in our society, the fear of death often prevents many of us from making plans for this most inevitable life event. Yet, by considering your own mortality and getting your affairs in order, you give yourself peace of mind and protect your children and loved ones should anything happen to you through wills, trusts, joint accounts, gifts and life insurance.

With the plethora of information in both the print and electronic media, there is no excuse for being ignorant about the basic principles of personal finance and the options available. Seek guidance from an experienced professional who will review your situation and advise accordingly. You have an opportunity to influence multiple generations by improving your own knowledge. Remember that ultimately, whatever your age, or stage and whether you are single, married, divorced, or widowed, you are responsible for your financial future.

source:moneymatterswithnimi.com

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Cashless Society: Have you embraced internet banking?

 

Have you embraced internet banking?

The internet has revolutionized banking and personal finance in many ways and most bank customers are familiar with online or internet banking services. Surprisingly however, many people even though equipped with internet access have not yet signed on. Whatever the reason may be that you have not yet embraced your banks internet banking service, here are some compelling reasons to do so.

Bank at your convenience

Nowadays, we are all so busy in our work lives, that there often isn�t the time to visit the bank. With internet banking, you can carry out most of your routine banking transactions at your convenience. As you are not bound by the banks� opening and closing hours and don�t have to physically visit the bank, if you have internet access, you can check your account balances, pay bills, make transfers, and manage your various accounts with a few simple clicks from your laptop or computer, your i-pad, or even your cell phone.

With this service you can plan to pay your bills on line and on time. Most households have routine bills to pay each month such as telephone, internet, cable television and so on. The process of writing a check and sending it to the same company every month can be inconvenient; with your online bill payment facility, you can schedule your payments easily and save yourself valuable time.

Some service providers in environments where online banking is widely used, are able to offer better terms such as slightly higher interest rates on savings accounts and lower service charges. This is because internet banking is cheaper to maintain than the traditional bricks and mortar with attendant high overheads.

As with any service there are tradeoffs and it is important to be aware of some of the pitfalls of internet banking.

Learning difficulties?

Some people avoid using Internet banking services because they find it difficult to understand, particularly some members of the older generation struggle who may with technology issues and find it difficult to adapt.The signing on process is usually quite simple; you are expected to provide some form of identification, to complete a form and forward it to your bank. Thereafter all you have to do is to simply visit the banks website and log on to your account after establishing some security measures including a username and password.

Bank websites can sometimes be difficult to navigate at first and some users might find them confusing and abandon them from the outset. Getting acquainted with the banking sites software may require some time and effort for you to get comfortable.

Banks must periodically upgrade their websites or may even change them entirely, by adding new features to enhance the site. This naturally leads to some down time as the changes are being implemented. Most bank websites do give some guidance by providing some basic tutorials to walk you through the process.

Security concerns

In spite of its growing popularity, there are still many people who feel unable to trust the system. Even though internet banking sites are usually heavily encrypted, one cannot rule out the fact that from time to time even in the largest global banks, sophisticated �hackers" may gain access. In addition to the security that your bank will provide, it is useful for you have some security software on your computer to reduce the chance of your account information being compromised.

The personal touch

Internet banking can be somewhat impersonal and not everyone is ready to give up the bank tellers� window, or forfeit the bank manager�s smile. Some people prefer to relate to a human being and are uncomfortable dealing with a machine. With a brick-and-mortar bank, you are likely to have some familiarity with the bank staff. If you are the kind of person that needs to enjoy the personal touch then you may never feel completely comfortable with virtual banking. However for your most basic transactions such as bill paying and small transfers it still makes sense to handle such transactions on line and then go into your branch for the more significant matters.

Some institutions have developed a seamless customer friendly service. For others sadly, you may experience appalling service, ranging from a website that is difficult to navigate, frequent server downtime and so on, much like the variations in customer service from bank to bank.

Clearly, the whole concept of internet or online banking has its pros and cons. If unlimited access to your bank accounts and convenience is high up on your list of banking priorities, then internet banking is ideal for you; for those who have signed on, banking online helps them organize and manage their financial lives efficiently. For others however, it continues to be intimidating and complex. The truth is that the internet provides us with endless opportunities in our personal finances and it is important not to be left behind. Embrace internet banking now.

source:moneymatterswithnimi.com

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General: Singles & Money Matters

 

Whether you are single by choice or by circumstance; young and unmarried, divorced or widowed, your financial future will be largely affected by the decisions that you make today. For many single people, financial planning is not a priority as they feel that they have only themselves to worry about. Whilst every one should plan and save towards the future, being single presents some unique financial challenges that must be specially addressed. Your single status means that you are solely responsible for meeting any financial obligations; you may have to face financial challenges alone, and to make critical decisions concerning your future and retirement plans.

Set clear financial goals

If you have set clear short, medium, and long term goals, you will be able to design a financial plan to help you achieve them. If you are young and single, without dependents or any significant responsibility, this is one of the best times in your life to start to save and build financial security. By saving and investing regularly from now, you will be in a better position to meet your financial needs such as owning your own home, and securing a comfortable retirement.

Where does your money go?

Many single people tend to spend beyond their means and admit that eating out and mobile phone bills are some of the culprits that put a severe strain on their budge. Try to keep track of your spending by being more deliberate about making realistic purchasing decisions.

By creating a budget you will have more control over your spending. You should have a clear understanding of where your money is going and how you can best allocate it to fund your financial goals. Track your expenses so that if you are spending more than you make, you can adjust your budget accordingly and reign in any overspending.

Create an Emergency Fund

If you face a financial crisis, you may have only yourself to rely on. You don’t want to be forced to borrow to get through an emergency. A money market account holding about six months of living expenses is advised, but if you can afford it, go up to one year for added protection. You may need to take care of unexpected car repairs, medical bills, or  you could even lose your job; your emergency fund is a safety net, so do not spend it unless absolutely necessary.

Diversify your income streams

What would happen if you lost your primary source of income today?  Consider ways to diversify and multiply your income streams.  What are you good at? What do you like to do? There are endless possibilities. It is important to constantly improve yourself and build on your existing skills. The independence that you derive from less dependency on an employer opens up new opportunities that give you a better chance at long-term financial stability and success.

Do you have health insurance in place?

Young, healthy singles often consider health insurance unnecessary; this is a huge mistake. As pessimistic as it sounds, regardless of your age or present state of health, you can become ill, or be in an accident that lands you in hospital at significant cost.

If you cannot afford the most comprehensive plan with a low deductible, at a minimum, protect yourself from potentially devastating financial loss by purchasing a less expensive plan with a high deductible. This means that you will have to pay for the smaller expenses yourself, whilst the large ones that could make a huge dent in your finances, will be covered by insurance. Even where there is a supportive extended family that may be willing or able to help out, it is wise to have a plan in place to help to offset your expenses should the need arise. Medical bills from a serious illness can wipe out many decades of saving and investing

Plan for your retirement

When you are young and unattached, it is only natural to feel it is too early to save for retirement, yet your retirement plan rests squarely on your own shoulders. If you are not a beneficiary of an employer matched retirement plan, set up your own personal Retirement Savings Account with a Pension Fund Administrator. The sooner you begin to put money aside for retirement the better; if you delay by even just a few years, you could lose much of the advantage compounding brings.

Plan your estate

Many singles do not realize the importance of having a will and feel that it is unnecessary since they are on their own. If you own anything of value such as a home, cars, bank accounts, jewellery, stocks or property, you should have a will that specifies who will inherit your belongings if you die; relatives, friends, or your favourite charities. If you have children it is absolutely essential that you do write a will or have some estate plan in place; without this, the court will determine how your assets are distributed.

It is easy to avoid thinking about the worst case scenario; no one contemplates being ill for any long period of time or needing to be cared for. If you find yourself unable to make medical decisions for yourself, a living will and power of attorney for your finances and health care will designate someone you trust to make critical decisions for you or carry out your express wishes.

With proper planning while you are single, you may be well established financially by the time you get married and if you do remain single, you can be confident in your ability to achieve the lifestyle and financial security that you desire.

  source:moneymatterswithnimi.com

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Investing In The Stock Market: What is value investing?

 

What is value investing?

Value investing is an investment approach that is based on the premise that with some effort, you can find good, strong companies whose share prices have fallen, so offer good value for money. It was made popular by Benjamin Graham, and Warren Buffet, who largely based his investment decisions on the tenets of value investing and used this approach to build his extraordinary fortune. According to Warren Buffet, “value investing is the real form of investment, anything else is pure speculation”.

Assumptions of value investing

More often than not, the stock price does not reflect the real value of the stock itself. Market volatility, emotions and fear drive price volatility. The result is that stock prices will be either the stock prices will be overvalued or undervalued at a particular time.

Nobody knows exactly when the market will reflect the stock’s true or fundamental value; it could take months, years, even decades. However, its future prospect and potential growth is the best indication of a stocks true value. Fundamental analysis helps one in uncovering hidden gems in the stock market. Such companies would usually have valuable assets, a strong balance sheet reflecting stable earnings and dividend history with potential for growth, an experienced board and management team, and would command a sizeable market share. How a company’s financials stand, its credit ratings, and industry outlook; all these come into play and are key to fundamental analysis.

Value investing is somewhat subjective and two investors may have exactly the same information on a company and yet place differing values on it using different valuation methods. Companies of different sizes or in different sectors may differ in terms of what is considered to be of good value. For example, what is cheap for a banking stock may not be cheap for a company that produces consumer goods. 

Value investing thrives on fear and uncertainty

Markets often over react to negative news with the result that good stocks fall far below their fundamental values along with less attractive stocks. Value investing relies on the psychology of fear in the market. When there is fear in the market, many “investors” start to sell in a panic. In this process, some attractive stocks fall below their fundamental values ready to be snapped up by the discerning value investor.

Bargain hunters

Value investors are often labeled “bargain hunters” as they actively seek out the stock of companies that they believe are undervalued; they are not just looking to buy cheap stocks but are “smart” shoppers looking for the stocks of companies with good fundamentals. When they are undervalued, they buy them, and where they are overvalued, they stay away from them.

The Cash Advantage



As far as possible, it is advisable for investors to hold some cash in their portfolios at all times. Stockmarket investing comes with a degree of risk. It is thus important to hedge your risks by diversifying your investment portfolio to include not just stocks but other asset classes such as bonds, real estate and cash; this helps reduce volatility in your portfolio and protects your net worth. Value investors with cash holdings in their portfolio have the luxury of buying great stocks at relatively low prices during a market correction or crash; this can lead to a solid appreciation in their portfolios over a longer period of time.

Think Long Term

Markets tend to overreact to good and bad news and price movements may not necessarily correspond with a company's long-term prospects. Value investors believe that although the stock market may be volatile in the short-term, and may not capture the fundamentals of a business, in the long-run, the fundamentals are of paramount importance. This is not about making quick money; thinking long term forces you to think more about quality. As Warren Buffet comments, “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be mis-appraised.”

Uncertainty favours long term value investors as it creates fear, leading to panic selling, which forces prices downward regardless of a company’s long term prospects. They are better able to weather the storm of market volatility as they expect that its long term economic value should eventually pull a company’s stock price back up; it doesn’t matter that its share price goes down temporarily.

Are you still apprehensive about the stock market?

Many people continue to be apprehensive about the stock market, yet we are experiencing a time that can be described as the value investors’ dream as we continue to see real discounts among companies with strong underlying fundamentals offering significant buying opportunities. Many companies have hit unprecedented lows in their share prices and some of them represent good value that make them attractive buys for the serious long term investor, in spite of the fact that their share prices could still drop further.

It is important to adopt an investment strategy that will guide your overall investment decisions about which stocks to purchase and when to buy or sell. The style that you ultimately choose should largely depend on your objectives, your expectations of long-term returns and your risk appetite.

Equipped with the right tools, knowledge, research and of course, professional support, you can equip yourself to make better informed decisions. For most investors however, it is far simpler to take advantage of the opportunities that exist by accessing the market through mutual funds and discretionary portfolios where all decisions are made on your behalf by experienced professionals.

source:moneymatterswithnimi.com

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Debt: Debt: The good, the bad, and the ugly

 

The faces of debt: The good, the bad and the ugly
It is almost impossible to live totally debt-free; most people will borrow money at some stage in their lives. Borrowing can be a useful way to help spread out the cost of large purchases or expenses that we could perhaps not otherwise afford. It can also help us through difficult times or periods when there just isn’t enough cash. By borrowing to invest it is possible to attain greater levels of financial success than if one depended solely on ones own resources. Debt is often regarded as “bad” often ignoring the difference between "good debt" and "bad debt".
“Good Debt” versus “Bad Debt”
“Bad debt” is where you borrow to finance lifestyle purchases, such as clothes, jewelry, expensive cars, holidays or just to have a good time; these are things that should ideally be paid for in cash and not with credit cards and personal loans. Bad debt does not usually generate income or wealth. Resist borrowing to buy things that will quickly depreciate or lose value. Using credit responsibly can help grow our wealth; yet if not carefully managed, debt can have dire consequences.
“Good debt” is debt that creates value and can help to build wealth and generate income. This includes borrowing to buy property, to finance an education, for a business or for investment purposes such as for the purchase of property or shares.
Borrowing to buy a home
For many people a home will be the single largest investment they will ever make. A mortgage makes good sense provided you are able to comfortably handle the monthly payments over what may be a considerable period of time. Usually the value of the property, if in the right location, will appreciate over time and should more than make up for the financing costs that you would have incurred.
A home equity loan allows you to borrow using the equity in your home as collateral. If you have equity in your home, you may be able to use your home as security for a loan that you can use to invest in other assets. Your equity in the property is the difference between how much the home is worth and how much you owe on the mortgage.
Borrowing to finance an education
Higher education comes with huge financial value and usually increases earning potential thus making a difference to one’s future. Student loans are commonplace in developed markets. It is expected that once the students have completed their studies, they should be gainfully employed or at least have an enhanced ability to earn a living and attain financial independence and security.
Borrowing for a business
Businesses often require a credit line in place to be able to operate efficiently. Others need to borrow to expand their facilities or to take advantage of short-term opportunities. Other forms of debt financing include vehicle and asset financing which may be considered especially for big-ticket items such as computers, generators, and motor vehicles.
Borrowing to invest
Borrowing to invest in good quality assets that grow in value can build one’s wealth substantially. In general, it is a strategy best suited for investors who have a greater than average tolerance for risk. Experienced investors often borrow to take advantage of short-term market opportunities. If interest rates are low and the prices of assets such as shares and property are rising or the expectation is that you will be able to get a higher return from investing than you will pay in interest on a loan, then it makes sense to borrow.
Buying stocks on “margin” or margin trading is where one borrows money to invest in shares and/or managed funds using an existing investment portfolio or cash as security. Borrowing additional money to invest provides the means to build a more diversified portfolio; with more funds available to invest, you can spread your investments across more asset classes thus reducing your risk. There may also be tax advantages where there is a tax deduction for the interest costs paid on an investment loan.
Is margin borrowing for you?
Unfortunately, the ugly side of a leverage strategy is too often ignored in the face of the prospect of magnified returns with exponential investment portfolio growth. Investors particularly the inexperienced, uninformed investors are enticed into taking margin loans with the expectation of inevitable and imminent prosperity with little regard for the accompanying risk; indeed, some of the most devastating debt has come from people borrowing to invest.
A loan must be repaid, regardless of how investments perform. The worst-case scenario comes where the cost of borrowing is climbing while investment values are falling. If the investment value goes down, a margin call, or requirement to provide additional collateral may occur. Even as investments are being sold at a loss, the investor must still cover the difference between the outstanding loan and the investment proceeds out of their own pocket. If cash isn't available and the loan has been secured using stocks or their home as collateral, they risk losing these assets.
Sometimes it makes sense to borrow - sometimes it doesn't. It is important to understand your money personality, how much risk you are prepared to take, and how you feel about debt. Debt should be viewed as a tool to get you further along the path towards your financial goals.  Do give yourself some credit, but be careful.

source:moneymatterswithnimi.com

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Financial Planning: What kind of investor are you?

 

What kind of investor are you?

55 year-old Daba Lawson is five years from retirement, and is still smarting from her experience in the Nigerian stock market since 2008. Daba like so many of us got caught up in the euphoria of the bull-run. One of her young friends had taken a margin facility to leverage her stock portfolio and had enjoyed huge successes. Her friend urged Daba to borrow from her bank to buy shares, and for two years she realised huge “paper” profits in her portfolio.

Then the market changed, and at the time of the downturn, Daba had almost all of her money in stocks. Daba’s friend advised her to “hang in there” and things would soon rebound. The stockmarket decline continued unabated and in Daba panicked and sold all her stocks to pay off her margin loan; she lost about 65% of her money.

Daba tried to try to recoup at least some of the huge losses she sustained during the stockmarket crash and decided to put what was left in a fixed deposit and earned 14% per annum for about a year. She vowed never to touch the stock market again. Now Daba has a new problem; all her money is still in the money market and she is earning only 3.75% per annum. Daba moved from an all-stock portfolio to an all-cash portfolio both extreme and extremely risky, neither of which will help her achieve her financial goals and objectives.

Like Daba, many investors overreacted to the volatile market conditions and completely abandoned the stockmarket during the steep decline. Whilst this may have brought them some temporary peace-of-mind, unless they consider a more diversified portfolio that includes assets that have some prospect of growth, the long-term effect may be just as damaging.
 It is important that investors balance fear and risk against the likelihood of achieving their financial goals. This involves a process of gradually moving to a more balanced asset allocation.

Don’t put all your eggs in one basket

Daba has sought advice from her financial advisor who has pointed out that as most of her retirement savings are in the money market, it is unlikely that her retirement fund will keep apace with inflation. Unless she diversifies her portfolio and considers going back into the stockmarket but with careful thought and a tested strategy this time, she has little prospect of achieving the retirement she envisaged for herself. As Daba is still very risk averse, and really doesn’t have the time nor the expertise to select stocks herself, it is recommended that she should re-enter the market through an equity mutual fund. This provides her with a diversified portfolio, which is managed by professionals.

Consider a cost averaging strategy

This time, however, Daba will avoid making any single big move into stocks, but will do so gradually using a cost averaging strategy. This involves investing a certain sum regularly into a carefully selected equity fund that focuses on investing in blue chip growth stocks. By drip-feeding her funds into the stock market she feels more comfortable; she is also putting away each month only what she can comfortably afford from her monthly income. Fortunately she is earning enough to be able to afford to invest N50,000 a month by direct debit from her salary account so she is not tempted to spend it. She has also promised herself that this is her retirement nest egg and she wont be touching it for several years. A long-term perspective is what is required for the stock market, which has historically out-performed other investments over the long-term. She is under no illusion that she must cut back on her spending and might even have to delay retirement and she is prepared to so this so that she does.

What is your money personality?

It is important to know your money personality. Are you risk-averse and feel over anxious or even panic when you learn that the value of your investments has gone down? Or are you able to stay fairly relaxed as the value of your investment fluctuates with the ongoing market volatility? You might on the other hand be one of those people that can sit back calmly during the market swings and stick with your long-term strategy even if you face short-term losses. These are all questions to answer as you develop your strategy. Do you have a strategy at all? Risk is a natural part of investing; it is thus important to understand what the risks are.

Investor confidence has suffered a great deal in Nigeria and indeed all over the world. Fearful of the stock market, many retirees or those close to retirement have shunned traditional investment vehicles like stocks and mutual funds. It is true that anyone invested in the stock market is bound to lose money from time to time, yet those who retained some exposure to equities amid the peak of the global financial crisis are likely to have ended up better off on average, than those who reduced their equity exposure to zero. Understanding your personal risk tolerance will help you create a sound financial plan that you can stick with through both good times and bad. 

  source:moneymatterswithnimi.com

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